Corporate planning permits individuals and businesses to separate their individual assets and liabilities from that of the corporation’s, establish a succession plan and reduce the size of the business owner’s taxable estate. The incorporation process includes selecting the appropriate corporate entity, drafting corporate bylaws and planning for the day-to-day operations of the business.
At the Law Offices of Joshua E. Stern, we have extensive experience in all areas relating to corporate planning in Illinois. We can help guide you through the process and ensure that the decisions made will benefit your corporate entity.
Choosing the Right Corporate Entity
Some of the most important decisions a business owner will make occur early in the life of the entity. Choosing the right corporate structure can shield the owner from liability, take advantage of tax benefits and protect the assets and intellectual property of the business. It’s best for business owners to weigh the pros and cons of all corporate structures prior to making a selection.
A corporation is a business that’s a separate legal entity from its owners (called shareholders), thereby shielding them from personal liability for the corporation’s debts and liabilities. Shareholders may transfer their interests in the corporation pursuant to their shareholder agreement, thereby making ownership of the corporation somewhat fluid. Corporate bylaws permit the creation and sale of various forms of stock, which may further define each shareholder’s managerial role and share of corporate income. Because a corporation is a separate legal entity, it may bring a lawsuit on its own behalf or be sued. Forming a corporation requires the owner(s) to draft articles of incorporation and, where necessary, corporate bylaws and a shareholder agreement.
A close corporation is an entity controlled by an individual or a small group of shareholders. Closed corporations are commonly used for family-run businesses that want to protect the family’s ownership interest.
A general partnership is formed by two or more individuals operating a business together. A general partnership is a separate legal entity from its owners, but the partners remain personally responsible for the partnership’s liabilities. Because a general partnership is a separate legal entity, it may own property, be sued and sue on its own behalf. Like any partnership, a general partnership requires a thorough partnership agreement.
A limited partnership is similar to a general partnership, except for the inclusion of a limited partner—who acts as a passive investor in the partnership and whose liability is limited to the amount of his or her contribution to the partnership.
Limited Liability Partnership (LLP)
A limited liability partnership protects individual partners in the partnership. The other partners may not be held liable for another partner’s misconduct or negligence. Likewise, the partners are also not personally liable for the obligations and liabilities of the partnership.
Limited Liability Company (LLC)
A limited liability company is a business that combines the liability protections of a traditional corporation with pass-through taxation for federal income taxes. LLCs are governed by their operating agreement, which expressly defines each member’s rights and responsibilities to the LLC. Operating agreements may provide the LLC’s members with more flexibility in governing the corporation. Pass-through taxation permits the LLC to pay taxes on the income paid to its shareholders and not on the corporation’s earnings.
Professional Services Corporation (S Corp)
A professional services corporation, commonly referred to as an S Corp, is a corporation where the owner earns more of his or her income from personal services. An S Corp permits the owner to avoid self-employment taxation.
Forming the Corporate Entity
Due to the filings and drafting involved in forming a corporate entity, it’s best to work with an experienced attorney to ensure that all necessary corporate governance documents have been created and the arrangements thoroughly vetted. A successful business should never be hobbled by poor decisions during its formation.
Contact an Evanston Corporate Planning Law Firm
At the Law Offices of Joshua E. Stern in Evanston and Chicago, we are dedicated to guiding you through the process of forming a corporate entity. We are always happy to further discuss the specifics of forming a corporation in Illinois, and what your case will entail. Request a free consultation online or call us at (847) 868-9584.